“Until victory with Lula and Fernández,” a Brazilian with his little daughter says to the camera, smiling and making an “L” shape with his thumb and forefinger. Below is a picture of Alberto Fernandez next to the new Brazilian president, embracing – and with the Argentine making the same “L” – closes a video recorded by the press service of the Argentine presidency. And the message synthesizes the hope of the “contagion effect” from which the Government hopes to benefit when starting an election year.
“A leader committed to his people who claims rights and works together for democracy. The people of Brazil have achieved it. Now it will be easier to talk about integration in our great homeland”, Alberto Fernández wrote in a tweet, which accompanies the video in which images of happy militants can be seen at the inauguration ceremony held in Brasilia.
The video generated a instant controversy on social networks, where accusations of wanting to associate his image with someone else’s victory flew.
The truth is that Alberto had his long-awaited photo with Luiz Inacio Lula Da Silvawith whom he had a side-by-side meeting friendly and full of mutual congratulations – the Brazilian reiterated the greeting for the victory in the World Cup in Qatar – in which it was decided to “relaunch the link between the two countries”.
And he promised a coordinated foreign policy, something that will have its first practical application in the visit that the Brazilian will make to Argentina on January 23, on the occasion of the CELAC meeting in Buenos Aires.
But, beyond regional diplomacy and realignments, for Alberto this visit to Lula meant a clear message addressed to the internal of Peronism: there is a new political climate in Latin America, the elections are not lost, and the example to follow is that of Lula, who -far from withdrawing into his militancy and radicalized discourses- allied himself with former adversaries and broadened his base of support .
A leader committed to his people who claims rights and works in unity for democracy.???????? The people of Brazil have achieved it. Now it will be easier to talk about integration in our great homeland.@LulaOficialin the place it deserves. pic.twitter.com/9dg9EXdyCA
– Alberto Fernandez (@alferdez) January 2, 2023
First reality check for Lula
Before, the first speech of fernando haddadBrazil’s new economy minister, could have generated enthusiastic applause for any of the contending sectors within the Frente de Todos: he said his priority will be “the generation of jobs, opportunities, income, decent wages, food on the table and fairer prices.”
But while the Argentine government continues to celebrate Lula’s return to the Brazilian presidency as its own victory and seeks to capitalize on the change in regional political trend to improve its chances in the electoral race, the neighboring country has already begun to give first signs that plans in the economy can become more complicated than anticipated.
Lula’s first day in power seems to confirm what many suspected: that in a highly polarized country and with a government that does not have majorities of its own, any policy change will generate resistance. Already early in the morning, the dollar and interest rates in the futures market rose, while the São Paulo stock market fell, in a movement led by Petrobras and Banco do Brasil.
Analysts interpreted this situation as a first sign of market rejection to Lula’s inaugural speech, particularly for the reversal in the process of privatization of state companies.
On the other hand, the fact that Minister Haddad has expressed his preference for Eliminate a fuel tax exemption, but at the same time a 60-day extension of that measure was being published in the official gazette. That contradiction on the same day the new minister was sworn in already cast doubt on how internal discussions will be resolved in the new government and Haddad’s margin of action.
The truth is that Brazil is facing an explosive social situation and an economy that, although it is highly stable when compared to Argentina -it is expected inflation of 5.3% for the whole year– It has a little dynamic activity. The forecasts of the consultants point to a growth of just 0.7%, while there is a debate about whether or not to continue with the Bolsonaro strategy of high interest rates as a remedy to prevent inflation.
And there is a latent tension in the market. Lula will “inherit” an address from the Central Bank that she has shown concern about a possible rise in inflation, something that is reflected in a conservative policy to cut interest rates. And the outburst of Minister Haddad, who said that the cap on public spending that had been established by the Bolsonaro administration will be eliminated, put an additional note of concern.
Fernando Haddad, the new Brazilian economy minister, together with Lula: the market gave a welcome with the stock market falling
For now, the Selic reference rate stays in your high level of 13.75%. And the first survey among banks after Lula’s inauguration revealed upward adjustments in the market forecasts for inflation, which they place above the official goal. That is why a very gradual cut in the rate is expected, which by the end of the year would reach a level of 12.25%.
The Central, chaired by Roberto Campos Netoan economist who went through the direction of the Santander Bankhas already warned against subsidized credit policies and against the reversal of pro-market reforms, such as the new labor legislation.
Alberto Fernández and Argentine expectations
It is in this framework of uncertainty and struggle with the markets that Argentina will try to consolidate an alliance with Lula that goes beyond rhetoric and materializes in economic aid. For example, the disbursement of US$689 million to finance the second section of the Kirchner gas pipeline.
The money, as announced, will come from the National Development Bank (Bndes)an institution that had already had, during Lula’s first presidency, a leading role in regional integration, to the point that he helped several large companies to establish themselves in Argentina through the purchase of businesses. In his inauguration speech, Lula promised that state banks will once again play a decisive role in the economic plan.
On the other hand, a currency swap is pending approval, for an amount of up to US$10,000 million, which will help the Central Bank to reinforce its reserve position at a particularly sensitive moment. The neighboring country has US$331,000 million in reserves, that is, seven and a half times the Argentine amount -or 65% more, if measured in per capita terms-.
The foreseen methodology is similar to that used in the agreement with China: an amount denominated in reais, which may be used to finance imports from Brazil. There are also possibilities of progress in the application of a new binational currency -called “South”- that fulfills the objective most desired by the Argentine Government: not having to depend on the use of the dollar for exchange with the main commercial partners.
Speaking in silver, the imports yearly from the neighboring country exceed US$15,000 million. Brazil is the second country -after China- from which Brazil buys the most, to the point that 19.5% of total imports come from there.
The Brazilian market represents the destination for 60% of the cars produced in Argentina
The binational balance is negative for Argentina, given that the exports to Brazil are around US$12.5 billion annually. And Brazil is still the first buyer of Argentine products -14% of the total go there-, a fact that illustrates why every piece of news about a slowdown in the Brazilian economy is received like a bucket of cold water by Argentine businessmen.
For some industries in particular, this “Brazil-dependency” is very intense, as is the case with the automotive industry, which sends 60% of the vehicles that leave local terminals to the neighboring market.
But of course, this dependency is not verified in the opposite direction, but the relevance of the Argentine economy for Brazil is less and less. At the end of the 1990s, Argentina had 14% of total Brazilian imports, but 25 years later that share plummeted to less than 5%.
According to an estimate of the Mediterranean Foundationif Argentina had maintained its historical “market share” in Brazilian imports, today it would be selling some US$38,000 million, almost triple the current figure.
The divergence of paths between both partners is evident in many indicators. For example, 15 years ago the participation in world exports of the soybean complex was similar, around 25%. But while today Brazil climbed to a 40% share, Argentina fell to a level of 15%.
The plane in which a similar deterioration is registered in both countries is the social one. The current poverty indicator in Brazil is 29%, a level below the 35% that existed in 2003, when Lula first took office, but well above the 20% that was when he handed over power in 2010.
